Most women have come a long way. In the life that they lead, in the careers that they follow, in the responsibility they shoulder, in the roles that they play, both in the world, and as part of the family. But, when it comes to the basics of finance, women seem to be on a slow stride.
It is quite natural to find women leaving the nuances of investment and finance to the men in their lives – their father or husband.
But personal finance and investment is not as complex as it seems. There are a few basic principles that every woman should have knowledge of, a few important points that will make their life much easier.

Absolute ground rule basics

1. Income should always exceed expenses: This is the most basic of all principles. Also, Expenses = Income – Savings. So how one should begin. You must be having your income and expense statement ready with you, now make one more column for savings. And, keep this before your expense column. Take a percentage of your income as savings (anything between 10 per cent and 50 per cent) and arrive at the amount left over to spend (your expenses, both essential and luxury/lifestyle). By following this rule, you will always be in surplus and have some money left over for the proverbial ‘rainy day’.

An addiction that is good – Savings!

2. Save at least 10 per cent of every hundred rupees you earn – not too difficult, is it? However, the rule here is to increase the figure as much as you can. If you can make it 20 per cent or 25 per cent, even better. Anything over this, just great!

A ‘must have’ for future uncertainties

3. Keep an emergency fund: This is an age-old rule, but gained prominence due to the recent recession. To help one tide over an unforeseen incident like downsizing, retrenchment, pay cut or even an illness or accident, an emergency fund is an absolute essential for everyone. Keep aside at least 3-6 months of your expenses as an emergency fund. If you have a cash reserve, you will not have to dip into your savings or liquidate your long-term investments.

4. Spend on health insurance, general insurance and personal accident insurance: Yes, spend on insurance. And, not just on you, but your family too. This will actually translate into savings due to tax deductions (on premium paid) and help you lead a happier and healthier life, without worry or stress of any emergencies that you may face in life.

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It’s all about ‘credit’ and ‘debit’

5. Pay off all debts on time: a) Ensure you do not miss on paying any loan instalments. If you can, prepay loans and move out of the debt cycle. Use every extra income flow to pay off debts before giving in to luxurious indulges. b) Pay up your credit card bills on or before due date. This industry thrives on the extremely high rates of interest they charge for unpaid credit. Do not fall into this trap. If you have to make a choice in paying off debt, pay off credit card dues before other debts. You will be saved from the compounding effect of high interest rates.

6. Ask for lower limits on credit cards: Request your issuing bank to give you a lower credit limit. This way, you will not be tempted to spend more. Draw a self-imposed line for credit card spends. Do not spend more than the percentage you have set on your card. You will avoid reckless purchases and end up contributing more towards your savings kitty.

Some fundas on investing

7. Difference between saving and investing: Saving should be a regular habit, but investing should be done only when one is debt free. Paying interest on debt (especially, if it is in the higher end of 18 per cent +) will not be cost effective if your investments do not earn a higher rate of return.

8. Don’t even bother to time the market: Do not track the market for a good time to invest. Investing should be done systematically and with a disciplined approach. Regular investing in value stocks or a mutual fund, by way of a Systematic Investment Plan (SIP), will ensure you decent returns in the long run.

9. If you don’t understand an investment product, avoid it. You should understand where your money is going and the inherent risks of the investment.

10. Make a financial plan: Approach a financial planner to chalk out a plan for you. Then, stick to it. Invest as per the plan, monitor the plan and change it as required. It’s a good way to make additions to your savings nest.

Think about retirement – Now

11. Make a retirement plan: Most financial planners are of the opinion that you should start planning for retirement as soon as you start working. When you start young, the effect of compounding works wonderfully and you can build up a tidy sum for your retirement. So, if you have not yet planned for your retirement, do it now.

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12. Do not cash out your Employees’ Provident Fund (EPF) when you switch jobs: Remember the main reason for the PF? It’s a cash booty that you should get when you need it most, i.e., after retirement. Your PF amount earns interest, which is currently tax free. If you cash out your PF, you are most likely to spend the amount or give in to the desire of investing for quick profits. Just let the amount be. In fact, it is advisable to ask your company to cut 10 per cent more from your salary towards your provident fund as a voluntary contribution. The amount will add up to quite a sum and contribute to your retirement planning funds.

The final word
Being financially savvy is not a tough job. Follow a few simple rules, plan and execute. Read and learn all you can on this subject. And, you will have soon built a strong financial foundation for your family and yourself.

More articles:
1. Do you pay high charges on your credit card?
2. How to prepay a personal loan
3. 6 tips for smarter insurance planning
4. How should women handle their money?

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